Down Payment - Explained!
When you’re purchasing a home and going through the mortgage process, if you can believe it, the lender requires us to verify the source of each dollar of your down payment. We have to know where each dollar was over the last 90 days. Crazy, right?
Often, this means, viewing all the transactions made in every account that the down payment is coming from. We realize this may sound like a murder investigation, but it’s all part of the home buying process. The more organized you are during the pre-approval process, the less stressful it will be when you pull the trigger and purchase a new home.
We wrote this blog post to do 2 things:
1. To explain WHY the lender needs this history on your down payment
2. To provide tips and tricks about how to simplify the down payment verification process
Why are the lenders wanting to know about what I did with my money over the last 90 days?
1. Anti Money Laundering Legislation
More money is “cleaned” through Real Estate in Canada that anything else. Money from all different kinds of illegal operations is used to purchase Real Estate, and then that Real Estate is sold and voila – the money is shiny clean.
2. Sanctioned Countries
If your money is coming from a sanctioned country, we’ve got serious issues. Canada has programs in place to Sanction countries that they believe fund terrorism for example. Click HERE for a list of the current sanctioned countries.
3. Tax Avoidance
Large cash deposits always sound the alarm for lenders. They want to know that you’re paying your personal taxes to CRA and not hiding anything from “the Man.” Lenders do not want to support “under the table” business.
4. Borrowed funds
If some of your funds came from a borrowed source, the lender wants to understand this. It’s not that you couldn’t possibly borrow some of your down payment, but it has to be accounted for properly. We don’t want to find this in the down payment documents “after the fact” as it has to be accounted for in the original application.
What can I do to get my down payment documents ready?
1. Stop Needlessly Transferring Money
The more you transfer money in the 90 days before you purchase a home, the more you have to explain. Unless you’ve got a good reason to transfer $2000 from your chequings to your savings account, just leave it where it is.
2. Organize, organize, organize!
Getting your docs in order will make the entire process smoother and easier for you and for the lender. When we present the lender your documents, there will be a lot of cross-referencing involved; it helps SO MUCH to have a summary email outlining what accounts the down payment will be coming from and the amount of funds coming from each account. If you have deposits over $1500 (that are NOT deposits from your employment income) then these need to be verified.
For example, if I have $25,000 in my chequing account on January 1st, but there were large deposits into that chequing account on December 15th and 17th, I would need to include 90 days history on the account that those large deposits come from. I would send an email to the broker saying, “deposits on December 15th and 17th came from the account ending in #1234.”
3. Use THIS document checklist
When you are collecting your down payment documents, make sure that they meet the document standards. Unfortunately, if these documents do not meet the standards, we have to come back and ask for something else. This is the #1 reason clients become frustrated with the process, so we’re trying to make it easier up front! For each document, ask yourself these questions:
Does this document include my name? If it doesn’t, can I take a screenshot of my “account summary page” so that the broker can cross reference the account number on the statement with the summary page that includes my name?
Does this document provide 90 days history on the funds? If not, can I print another statement or can I provide a screen shot of my current balance?
Has anything been redacted on this statement? Note that any altered documents will be immediately rejected by the lender.
Have I provided an explanation for any deposits over $1500? Remember that we have to have the source of the funds for any large deposits (that are not payroll deposits) hitting your account.
A special note about gifted funds:
If some or all the down payment comes from a gift, we will need to show the amount being transferred into your account and you and the person gifting the funds will need to complete and sign a gift letter provided by that particular lender. Please don’t write your own gift letter. Once we have picked the best lender for your particular situation, we will send you the gift letter (via docusign). All we need from you for a gifted down payment is:
The full name and email of the giftor
A bank statement (that includes your name) showing the gifted funds hitting the account. If the gift came in multiple instalments, please just let us know the dates and amounts and we’ll write the gift letter for your accordingly.
Summary
Each account involved in the transaction of a down payment needs to be included in our package to your lender. The statements need to show your name, account number, transaction history, and remaining balance. With online banking, this can be done so quickly and so efficiently! If you’re struggling with your online banking platform, please call us – we’ve used them all! We want your home buying journey to be a pleasant one, so let’s get through the documents on the front end to make sure that you lean into enjoying your house shopping!
